The Renton (WA) Reporter has this story that Boeing will continue to build the 737 into the 2020 decade, further extending the timeline for a replacement aircraft, says Mike Bair, vice president of Business Strategy and Marketing for the company.

This is highly significant on a number of levels. First, it tends to match the timeline Airbus has already foretold about a replacement for the A320 about 2024. Neither company can really afford to undertake yet another new airplane program, given the cost overruns and customer penalties for their respective A380, A400M, 787 and 747-8 programs. Airbus is also engaged in R&D for the A350, with a price tag of roughly $15bn. With engineering and production resources stretched already, there simply are limitations for Airbus on taking on an entirely new development program.

For Boeing, the situation is compounded. The company also faces what to do about meeting the A350 threat to its successful 777 line. Although Boeing is looking at major derivative upgrades to the airplane, it is also necessary to consider an entirely new aircraft. The last thing Boeing needs is a requirement to develop a successor to the 737 on top of this-especially when decisions have to be made in what will now be the early years of the 787 entry-into-service.

Bair’s revelation that Boeing now looks to the 2020 decade for a replacement 737 also signals, at least to us, the increasing likelihood that Boeing will re-engine the 737 for greater fuel efficiency circa 2015, meeting a requirement sought by Southwest Airlines and other customers. Southwest is Boeing’s largest 737 customer, ordering more of this type since it was formed in 1971 than any other airline or lessor.

Airbus plans to decide by the end of next year whether to re-engine the A320 family. Boeing will certainly match any plan to do so to keep the 737 competitive.

Moving replacement airplanes out to 2024 gives both companies the 7-8 years or more needed to recover R&D costs for a re-engined airplane. Boeing CEO Jim McNerney said a few months ago that a derivative 737 would cost 20%-40% that of a new airplane and that the business case for a re-engined model is better than originally thought.

Update: Defense News just published this article detailing the continuing problems Boeing has with the KC-767 Italian tanker, including the centerline hose-and-drogue problems we previously exclusively revealed in this column.

Original Post:

With Boeing and Northrop Grumman still in the Q&A stage with the USAF in advance of a Final Request for Proposals in the KC-X competition, we predict that Boeing will offer the KC-767 and not the KC-777.

Here’s why:

• Boeing simply cannot afford another new airplane program right now. The KC-777 is only a concept airplane; Boeing would have to sink billions of dollars into the development of this derivative aircraft. The cost overruns and customer penalties for the 787 and, to a lesser extent, the 747-8, are already squeezing the company. Boeing is faced with the larger problem of potentially launching an entirely new airplane program in 2011-13 to replace the 777 to meet the forthcoming Airbus A350; or a enhanced derivative of the 777; and a re-engined 737 or a successor airplane, also within the 2011-2015 period.
• The company has billions in “sunk costs” in the KC-767 International program. Financially, it makes far more sense to offer this airplane to the Air Force.
• Offering a tanker based on the 777 will open Boeing to WTO issues. The European Community identified the 777 as a major beneficiary of “illegal” subsidies in its complaint to the WTO against Boeing. As long as US interests are attacking illegal subsidies provided Airbus on the A330-based KC-30 offered by Northrop Grumman, any 777-based tanker will similarly come under attack, assuming the WTO rules in the EU’s favor, as expected.
• The 767 is less likely to trigger WTO issues. Launched in 1982, the 767–although included in the EU’s broad-based complaint (if we recall correctly)–the amount of “illegal” subsidies, if any, pales to that alleged for the 777.
• Boeing still has development issues with the KC-767I (Italian) version. We understand the centerline hose-and-drogue system now is causing Boeing headaches. (Boeing declines comment.) Still, the last thing Boeing needs are the risks associated with an entirely new tanker in the KC-777.
• A Boeing executive spilled the beans and said publicly, in front of more than 100 people, that the company was “leaning” (his word) toward the 767.

Evening Magazine, a 30-minute feature program by KING5 TV (NBC-Seattle) aired two segments November 4 about Boeing. The first is called “Boeing’s Secrets,” a feature about places, things or companies that the ordinary Joe doesn’t ordinarily know about (catchy phrase, there, eh?). The second is about Boeing’s Aircraft Psychology (no jokes or cracks, now–this is an upbeat and interesting segment). Both are about 2 1/2 minutes.

Both videos are on the KING5 website, precluding inserting them here.

Here is the Boeing’s Secrets video.

Here is the Boeing’s Aircraft Psychology video.

Update: The Mobile Press Register has this story saying that the USAF won’t include the WTO dispute in the KC-X competition because WTO rules prohibit doing so while the case is pending–something we’ve been telling the doggone politicians since they started their campaign to include it.

Original Post:

While the drama over the 787 Line 2 siting dominated the news last week, there was some stuff happening on the KC-X tanker front.

Boeing released this video about its tanker program. Note that KC-767 is shown with winglets, which in airline service are improving fuel burn by more than 4%.

Northrop, meantime, not only has threatened to not bid (as we previously posted), it is pondering suing over the USAF release of the Northrop cost basis of the KC-30 in the 2006 competition and the inability to get Boeing’s cost-basis on the KC-767AT.

The Pentagon says it is open to revising the specifications outlined in the draft RFP.

Northrop says the DRFP favors Boeing because it is a price-based document even though the Air Force says this is a best-value competition. (We agree this is price-based, not best value. Whether this puts Northrop at a disadvantage remains to be seen.)

Boeing CEO Jim McNerney said on the company’s October 21 earnings call that Boeing is placing a lot of emphasis on the World Trade Organization’s Interim Report in which it is said the WTO found Airbus benefited from $5bn in illegal launch aid for the A330 (few people have actually seen the report so far). Boeing supporters believe this $5bn should be added to the Northrop/Airbus base price in the KC-X competition. McNerney essentially said he can’t compete on price if it is not. We don’t quite understand this: the 767 tooling should be totally amortized by now, which ought to give Boeing a heck of a price advantage over Northrop/Airbus, which plans to build an entirely new assembly plant in Mobile (AL) to put the tanker together, complete (we presume) with new tooling.

KING5 TV (NBC-Seattle) had a report last week that suggests Charleston’s win for the 787 Line 2 might help Boeing in the tanker competition because it will pick up Congressional support in South Carolina for its bid. We’re not so sure that Boeing didn’t already have this state’s Congressional support, so we think the siting of Line 2 there probably won’t have much influence.

At long last, the EADS/Airbus KC-30 MRTT destined for the Australian Air Force passed gas through its aerial refueling boom. According to Inside Defense, a headline says the KC-X requirement will force Boeing to retool its refueling boom (the article itself is available to paid subscribers only).

Photo: EADS, as seen via the closed-circuit TV system on the MRTT.

Boeing supporters Monday (November 2) signed yet another letter urging the Air Force to take into account the WTO Interim Report about Airbus. With the WTO still to issue its Interim Report in the EU case against Boeing “subsidies,” we continue to oppose a one-side inclusion of this issue. If this happened and Boeing won the contract on price, Northrop would have a ready-made protest that certainly would be upheld, and another year or more would go by while the KC-135s get older.

If Boeing and its supporters insist on the WTO Airbus finding being included, then let’s wait another 6-9 months for the WTO Boeing report to be issued. Only then will a “fair and open competition” be fair and open.

The Background

It had been a long time coming. Boeing’s 787 repeated delays and great backlog meant that the company had to have a second production line to catch up and to offer delivery positions within reasonable time periods for new customers.

Observers and analysts long predicted that Boeing would put Line 2 in the growing 787 facility in Charleston (SC) rather than Everett (WA). By now, all the signs are well known to Boeing followers and need not be recounted here.

Boeing CEO Jim McNerney had been clear that the IAM labor strike for 57 days last year was a seminal moment. If 787 Line 2 were to be put in Everett, labor peace and long-term production stability was required–some kind of no-strike agreement. The only way to achieve this was a long-term contract. The current IAM contract is amendable in 2012, so this had to serve as the basis for a new deal.

Clearly the IAM wasn’t going to extend the contract for a long-term period, during which no strike is permitted, without something in return.

IAM 751 president Tom Wroblewski had a dilemma. Winning Line 2 for Everett would mean another 700-900 direct jobs–for the 787 Line. But in return for granting some kind of a long-term contract during which no strike was allowed, he faced the ultimate question from the workers on the 737, 747, 767, 777 and P-8A lines: “What’s in it for me?”

Fifty-five year old workers within sight of retirement were concerned about pension payments, something that Boeing attacked in the 2008 contract proposal. All workers were worried about rising health case costs. Boeing wanted worker contributions in the 2008 proposal. New hires and young workers may not be worried about pension payments at their age but they are worried about a living wage.

And in this economy, everyone is worried about job security, paying the rent and feeding their families.

So Wroblewski could hardly propose a deal that would include concessions without getting something for everybody.

Boeing, faced with billions of dollars of cost overruns and penalties to customers, and a 787 program that’s already had a $2.6bn write-off and the prospect of more, needed a solution that not only provided production stability but one that also had economics that it could live with.

So talks (but, as Boeing would later say, not “negotiations” in the classic sense) began.

What transpired over the course of the talks will forever be a matter of debate. The IAM said it provided an offer to Boeing but never got one back. Boeing says it told the union clearly what it wanted and when. The union said, no Boeing didn’t–that it was prepared to revise terms of the offer in response to a Boeing counter offer and in any case, the IAM said it didn’t know the deadline had come-and-gone.

After the decision was announced to put Line 2 in Charleston, Boeing and the IAM issued dueling messages outlining their positions in the inevitable spin war that followed. We posted these previously.

The Seattle Times, Everett Herald and several newspapers in South Carolina have various, and sometimes varying, accounts of what transpired. We provided links to these in previous posts, so we won’t go into these details here.

But we will do some recapping that we haven’t seen elsewhere.

It was all about labor–or was it?

Throughout the run-up to the decision, Boeing told everybody who would listen and everybody who asked that the key point in deciding where to put Line 2 was labor and strike disruptions.

But in explaining its decision, Boeing’s corporate communications professionals and a vice president of marketing revealed that there was more than labor that influenced the decision.

Washington Gov. Christine Gregoire was told over and over that the state’s business climate and incentives were not the issue–only labor was. Said the Governor upon hearing the news:

On the question of additional incentives to the company: “I have to tell you, they’ve never raised that issue. Never, they’ve got over $3 billion sitting on the table and what’s the incentive for every 787 – they get more money in incentives. So the state, and the Legislature, I think, with (former Gov.) Gary (Locke), stood up to the question and the challenge. And it’s unmatched by anybody in the country. And the amount of money (from South Caroline) $170 million versus $3 billion. It has never been raised to me by (Boeing Vice President) Jim Albaugh, or by (Boeing Vice Presidnet) Scott Carson. Scott Carson after the last legislative session when I said is there anything else the state can do with respect to the 787 line. He said, ‘don’t take away what you have on the table for us right now. Don’t take it away.’ And I said I will fight takeaways. Then when Jim Albaugh came I asked the same question of him, and I’ve asked it on numerous occasions, and today he made it very clear to me. ‘This is not about workers compensation, this is not about taxes from the state of Washington, this is not about you and your efforts or the Legislature and their efforts, because in fact they’ve been good efforts and we appreciate them…this is about negotiations with labor.” (From The Seattle P-I.)

US Rep. Jay Inslee (D-WA), whose district includes the Everett Boeing plant, said this (from The Seattle P-I):

Rep. Jay Inslee, a Democrat whose district is also home to many Boeing workers, said he “point blank” asked a “high-level official” with the company last week [before the decision was announced] whether there were any tax breaks or changes in worker’s compensation benefits that would convince Boeing to build the line here.

“The answer was no,” Inslee said.

Yet in the media interviews following the announcement, the Boeing spin changed in very noticeable ways.

Boeing spokesman Russ Young told KOMO TV (ABC-Seattle) that siting Line 2 in Charleston is not the beginning of the end for Boeing in Puget Sound, despite predictions (by aerospace analyst Richard Aboulafia of the Teal Group and by us). Yet Boeing would not guarantee future airplane programs will be here in Puget Sound (properly, in our view, but also an element in our prediction).

Young also told KOMO that other factors, including incentives and natural disasters were factors. Bernard Choi, another Boeing spokesman, also cited the business climate as a factor in interviews with a Seattle area radio station and a newspaper.

Randy Tinseth, VP-Marketing, runs BCA’s blog. He wrote, in part:

Finally, I want to point out that before we made this decision, we looked at a number of factors, including the business environment, logistics and infrastructure that exist at both company locations. We applied the same basic assumptions and ground rules to both sites, with a heavy emphasis on long-term competitiveness and ensuring a sustainable stream of deliveries for our customers.

We first heard the change in the Choi radio interview. We immediately called Boeing to ask that if business climate was indeed a factor, why wasn’t Washington State so advised and given the opportunity to consider more incentives rather than proceeding under the understanding that labor, not business climate, not incentives, was the issue. The push-back we received to our question was that it was simply off-base.

Afterward, we saw the TV interviews with Young and Tinseth’s blog. Clearly, what Boeing was saying after the decision did not track with what Gov. Gregoire and Jay Inslee were told before the announcement.

Demanding more than  Boeing could accept

Boeing says an agreement could not be reached because the IAM demanded guarantees that future airplane programs (the 737 and 777 replacements) would be in Puget Sound, something that Boeing would not guarantee for a decision five or six years or so in the future; and that that IAM demanded Boeing remain neutral in IAM organizing efforts elsewhere in the country–something Boeing said was unrelated to Puget Sound and which it could not accept in any event.

Frankly, we agree with Boeing’s position on these two items. But the union told us it was willing to forgo the neutrality demand, if only it had had a chance to do so but Boeing never came back with a counter-offer. And, the union told us, it was only reasonable to seek a guarantee of the new programs as long as Boeing sought a long-term contract.

On the former point, we think it was a dumb idea to propose the neutrality clause and on the latter, we simply think Boeing is correct.

But wait: the union also says Boeing negotiators weren’t willing to even guarantee that Line 2 would be placed in Everett if the IAM offered up a long-term deal. Boeing says negotiators could only recommend Everett to the Board of Directors if the IAM came up with an acceptable deal.

While the IAM makes a big deal of this, we think this complaint is a red herring. The Boeing side was in the same position as the IAM: the IAM team could not guarantee their proposals any more than the Boeing team could guarantee Line 2 to Everett. The Boeing team needed Board approval and the IAM team needed a membership vote.

The two sides were apart on economic issues. IAM says Boeing never said what it wanted or came back with a counter-offer, asking only, “is this the best you can do?” leaving the IAM “negotiating with ourselves.” Boeing said it was very clear about what it wanted and the union didn’t meet the company’s needs.

What is clear from all this ambiguity is that the entire relationship, on both sides, is totally dysfunctional. They each need a keeper in a situation like this.

Take-aways and strikes

IAM’s Connie Kelleher says Boeing can avoid strikes by avoiding proposing “take-aways.” “I’ve been here 28 years and we’ve had four strikes. Each was because Boeing proposed take-aways. If you don’t have take-aways, you won’t have strikes,” she told us.

Strike-Immune?

Boeing says Charleston will diversify the workforce and reduce the impact of strikes. We don’t think so. Charleston and Everett are so inter-connected that we think a strike in Everett will have spillover to Charleston; you can’t totally divorce the two. We’ve also talked with Boeing officials who say the same thing.

Unionizing Charleston

Charleston workers voted to decertify the IAM local there, another factor in the site selection. South Carolina is a right-to-work state where unions are weak. But this doesn’t mean the plant may not re-organize at a later date. The IAM can come back one year after the decertification (or any other union can try). The engineers’ union, SPEEA, already said it will try to organize any engineers that locate there.

And a former long-time Boeing management executive believes Boeing management will mistreat the Charleston workers such that he thinks the plant will be unionized within 30 months.

Risk Factors

CEO McNerney acknowledged some inefficiencies of having Line 2 in Charleston and Line 1 in Everett. The company undoubtedly considered all the risks we’ve been bleating about for months and concluded these were acceptable.

But we’re not impressed with Boeing’s track record in evaluating risks. Management has been consistently wrong on the 787’s program risks; they were wrong on the 747-8 program challenges; and last year, they were wrong on the risks of a strike (unless one accepts the conspiracy theory that Boeing actually wanted a strike as part of a scenario to break the union and give more breathing room on the 787 program).

We think the risk to this high-risk program, with the continuing risks and the unknown-unknowns, is greater than putting Line 2 in Everett, union issues notwithstanding.

Wake Up Calls

Washington politicians and interested parties, The Seattle Times and even a South Carolina official, characterized Everett’s loss as a “wake-up call.” We find this laughable. Boeing’s move of headquarters in 2001 from Seattle to Chicago was a “wake-up call.” So was the near-miss in 2003 to land Line 1. So was our prediction last April that Line 2 would go to Charleston and subsequent airplane programs would not be in Washington. Boeing has been sourcing airplane production outside the state for decades.

How many wake-up calls do Washington stakeholders need before they wake up and find Boeing is gone?

With the siting of 787 Line 2 in Charleston, we’ve created several polls to gauge opinion. These are unscientific, to be sure: anyone can vote, as opposed to a specified cross-section of respondents. But we think the results will be interesting nonetheless.

The polls are after the jump.

1. Will Boeing leave Washington?

Many months ago we had a poll asking if Boeing would leave Washington and when. The results then were: No, 19%; Only the 737 replacement, 17%; By 2015, 16%; Only 787 Line 2, 16%; By 2020, 11%; Only the 777 replacement, 8%; and By 2010, 3%. Here is a new poll.

2. Was Everett seriously considered?

There is great debate whether Boeing seriously considered Everett to put 787 Line 2. Boeing says yes; the IAM says no; Patty Murray’s office says No; Sen. Lindsay Graham (R-SC) says yes. What do you say?

3. Who is to blame?

Finger-pointing started even before Boeing’s decision was announced. Boeing said going into the talks with the IAM that the union had to give a no-strike agreement and do other things to lane Line 2 for Everett. The union says Boeing had no intention of negotiating and talks were a sham. What do you think?

4. Did Washington do enough to land Line 2?

The ink wasn’t dry on the Boeing press release announcing Charleston when Washington State Republicans denounced Democratic Gov. Chris Gregoire and the Democratic Legislature for losing the line because they didn’t call a special session to pony up more incentives for Boeing, and charged that the State’s business climate isn’t friendly to Boeing. Boeing all along told Gregoire, local elected officials and Members of Congress that incentives and the business climate were the issues, but that labor was. Right up until they weren’t that is: at the last minute, Boeing negotiated incentives from South Carolina. What do you think?

5. Tennis-Shoe Mom is hoppin’ mad

US Sen.  Patty Murray, Washington’s senior senator and up to now Boeing’s biggest booster in the US Senate, believes Boeing never intended to locate Line 2 in Everett. She says now that she will limit her support for Boeing on non-Washington issues, like the California-based C-17. Is this a permanent shift in her thinking or just a temporary snit?

6. Where’s Norm?

US Rep. Norm Dicks is Boeing’s biggest supporter in the House of Representatives. He can’t keep his mouth shut when it comes to All Issues Boeing. But on this issue, he has been strangely silent. He hasn’t said a word that we’ve seen. Dicks is under investigation by the House Ethics Committee and others for ethics violations, and he issued a denial to the complaints, so we know he is alive and well. But where is Norm on this one?

7. Where will the 737 and 777 replacement airplanes be built?

Well before Boeing decided to put Line 2 in Charleston, some were predicting that the replacement airplanes for the 737 and 777 will be built outside Washington. What do you think?

8. What should Washington do next?

Before Boeing announced its decision, some observers and state officials began advocating that it’s time the State decouple from Boeing and begin actively seeking to recruit other aerospace companies to Washington and other lines of business besides commercial aerospace. Some of these advocates believe the time has come to invite Boeing’s direct competitors in commercial and defense into the state. What do you think?

9. Who should Washington recuit?

See poll #8 for explanation.

10. What type of aerospace should Washington recruit?

See poll #8 for explanation.

11. When will the 787 fly and be delivered?

Painfully, the 787 has undergone six delays and Boeing says the first flight will be something this quarter and first delivery in 4Q2010. What do you think?

Watch for our post mortem to be posted Monday, Nov. 2, on the entire Line 2 story.

This 5-page story (when printed out) picked up by several SC newspapers tells how Boeing selected Charleston for Line 2 and it paints a very different picture than the one in the previous post of the Everett Herald story.

One key item that will be of interest to Washington officials: Boeing held last minute negotiations with SC for an incentive package while keeping Washington in the dark, maintaining that incentives were an issue.

The Seattle Times’ Sunday (Nov. 1) edition has the following special reports, totaling 10 pages when printed out:

SC decision transforms Boeing’s relationships with WA, labor unions.

Sen. Murray won’t be “as inclined” to help Boeing. Gates’ report supports the Everett Herald version of how the selection unfolded.

Boeing to get second 787 line, briefly.

The Everett Herald Sunday has this additional piece, Signs were clear Boeing isn’t tied to location.

Update: Boeing spokesman Tim Healy provided this response to us when we asked about the article:

“We were utterly serious about reaching an agreement. And we told the IAM quite precisely what we needed from them and when.”

Original Post:

The Everett Herald has this stunning story that virtually confirms the IAM’s allegations that talks with Boeing over siting 787 Line 2 were a sham.

US Sen. Patty Murray (D-WA), Boeing’s biggest supporter in the Senate, was aware of the situation and tried to persuade Boeing to choose Everett, according to the story–which explains why she issued a statement after Boeing’s decision to select Charleston to not blame the union.

Here is the story from The Herald:

Everett, Wash.

Published: Friday, October 30, 2009
It’s mind made up early, Boeing’s talks with Murray were for appearancesPolitical analysis

 

 

By Jerry Cornfield
Herald Political Columnist Everett never had a chance.

 

At least it seems that way now to Sen. Patty Murray.

Months of quiet diplomacy on her part ended in disappointment when Boeing chose Charleston, S.C., over Everett for a second assembly line for the 787.

Disappointing but not surprising.

Signs of the company’s intentions had been popping up for months say those familiar with conversations that Murray had with Boeing.

Boeing executives only half-heartedly penciled in Everett for the coveted production line, discouraged Murray from rallying on the city’s behalf, held bad memories of the strike and Gov. Chris Gregoire walking the line, smarted from battles with state legislators and purchased a South Carolina aerospace company.

Murray heard firsthand on Feb. 9 about South Carolina’s favored status from Boeing execs Tim Keating and Phil Ruter. Charleston topped the list of choices with Everett scrawled along the margin, its chances slim if not none. They suggested Murray not waste her immense political capital trying to alter the course of events set in motion by Boeing’s big boss Jim McNerney.

Boeing’s plan for a second production line somewhere in America — the third will surely be in China — had gone from rumor to fact weeks before that February meeting.

Everett’s chances already seemed next to nil given the bitterness stirred by the Machinists strike in 2008.

McNerney had reached wit’s end with the union. He had shareholders pressing for profits, customers demanding deliveries and little patience for a work force eager to strike.

Yet, he liked Murray and respected the gravitas she holds in the nation’s capital. If she got deeply involved, McNerney was going to press pause on the process to see what evolved.

Murray began in February working to open a line of communication between Boeing and the union. The two sides needed to be talking if Everett was to have any shot at besting Charleston.

It wasn’t going to be easy. Even if they did start chatting, Boeing wanted a guarantee they could run a second production line for years without fear of strikes.

They called it a stable work force. They demanded a long-term contract ensuring no walkouts, period. They wanted 10 years of guaranteed labor peace.

To ask any union member to give up their right to strike is heresy. To ask Machinists fresh from the picket line and full of mistrust for those running the aerospace giant is, well, crazy.

Murray didn’t go that route. She did urge union leaders to look at the big picture for the long haul and to hear Boeing out. She wasn’t trying to mediate or negotiate for either viewpoint only to keep the conversation going.

Boeing deliberately set the bar high. For weeks and months there was little movement from workers. Murray, meanwhile, kept in touch with McNerney, meeting with him in May and June.

Neither side wanted lawmakers in the room during talks. So it left Murray, others in the congressional delegation, the governor and local elected officials to preach patience to both sides as Boeing signalled more of its intentions by buying Vought and securing development permits in South Carolina.

On Wednesday, Oct. 21, the union did something Boeing never expected.

Machinists reached up and grabbed hold of the bar McNerney thought was safely beyond their grasp. They submitted a “best and final” offer with a contract extension assuring no strikes through 2020.

Workers had a few things they wanted in the way of wages, benefits and, probably most annoying to Boeing, a commitment from the company for future work at the plant. These were negotiations on a long-term contract extension so a counteroffer from the aerospace company seemed in order.

It didn’t come.

Boeing went silent. Two days later, McNerney and Murray talked. Over the weekend there was a phone conversation between union and Boeing leaders.

Come Monday, Murray was back on the phone with McNerney, stressing how success was in sight with the two sides within an inch of one another’s positions. She felt confident the union would modify its stance if Boeing responded. McNerney made no promises.

The next night, the eve of the decision, McNerney and Murray spoke again.

This conversation differed from all their others. He told her a stable work force was not the only issue to be considered, though he didn’t share what other issues concerned him.

The conversation ended and with it all pretense of a second look at Everett.

Murray’s spokeswoman Alex Glass said this week, “I think Boeing was surprised they got as close as they did and may not have wanted to get to the finish line.

“There was somewhat of a feeling the jig was up and if they sat down with the union again they might have got more from the union,” she said.

Wednesday morning, Murray invited union and Boeing negotiators to her office, publicizing the sit-down to the media. Intuitively, she knew the decision was a done deal and Boeing would not show up.

This was no last-ditch effort, this was a brush back pitch from a skilled politician.

McNerney was to call her at 3 p.m. that day but didn’t. He was on a plane to South Carolina. He phoned after 4 p.m. and Murray let him rest on hold while she considered her words.

Framed on her wall is the first speech she delivered on the floor of the Senate in 1993. It was about Boeing, its history in the state and its roots in the people.

Reading it again gave her a moment to get perspective and decide what she would say. She picked up the phone and spoke of how the Boeing she knew for years is not the Boeing she’s been dealing with for months.

She hung up, still one of Boeing’s best allies in Congress where Washington’s interests are at stake.

There is really only one surprise in this week’s decision: how long it took to be made.

Political reporter Jerry Cornfield’s blog, The Petri Dish, is at www.heraldnet.com. Contact him at 360-352-8623 or jcornfield@heraldnet.com.

 

© 2009The Daily Herald Co., Everett, WA 

 

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The spin wars continue. Earlier today Boeing issued a message to employees explaining, from its perspective, why a deal with the IAM could not be reached.

A few hours later, the IAM 751 responded. We have both after the jump. The Boeing message is first because it was issued first, followed by the IAM note.

***This message is being sent from Ray Conner, Commercial Airplanes vice president of Supply Chain Management and Operations, and Doug Kight, Commercial Airplanes vice president of Human Resources, to all Commercial Airplanes managers and HR employees.***

Why our discussions with the IAM were unsuccessful

You have undoubtedly heard the many reactions and opinions of people weighing in on our decision to expand our 787 production capacity to Boeing Charleston. Not everything you read or hear is accurate, and that’s why we feel it’s important to share information to help your teams sort through the many perspectives.

We’d like to emphasize that Boeing considered many complex factors in this decision. Working with the union to achieve our objectives of production stability and long-term cost competitiveness was one of those factors.

We personally participated in the dialogue with the International Association of Machinists, starting in the summer. We held talks over many weeks with both IAM international and local representatives. The talks were constructive and all participants were engaged in a good-faith effort to address the issues. During these discussions we very clearly laid out our objectives and our need to have the union’s best offer for an agreement by mid-October to enable us to prepare a recommendation for the Oct. 26 meeting of Boeing’s board of directors. The IAM gave us that final proposal on Wed., Oct. 21.

Unfortunately, that offer fell short of what would have been needed for Boeing management to recommend to the board that the second 787 line be put in Everett, Wash. The union:

• Offered to extend the current contract eight years to 2020.
• Included annual general wage increases of 3 percent on top of an annual cost-of-living adjustment that has added more than 1 percent a year for the last 20 years.
• Required three lump-sum bonuses of $5,000 or 10 percent of earnings, whichever is greater, in 2009, 2013 and 2016.
• Included an annual pension increase of $2.50 per month for the life of the agreement, taking the pension to $103.50 by 2020.
• Demanded that Boeing promise to be neutral on all IAM organizing and decertification campaigns anywhere in the country.
• Required that Boeing guarantee to put future airplane programs in the Puget Sound region far into the future.
• Agreed to share medical cost increases, but deferred that sharing until 2018.

We told the IAM that we wouldn’t be able to make commitments on future airplanes so far into the future. And we couldn’t agree to blanket neutrality on international IAM campaigns that had nothing to do with our Puget Sound work force. Both issues were identified early as roadblocks to moving forward.

We stated that we needed an extension of at least 10 years to the current contract. We offered annual wage increases of 2 percent, a bit higher than the average increase that our IAM-represented employees have gained over the last 30 years. We offered annual pension increases at the same rate. We offered to introduce an annual incentive plan that could have boosted income annually for our employees.

In the end, we told the IAM clearly and repeatedly that their offer did not meet the objectives we had set out for a proposal to the board of directors. We asked them if they were sure that this was the best they could do on a range of issues, and they said it was. We gave them an ample, fair opportunity for discussion throughout this process, and the union was unwavering in its positions on key issues. That’s why we declined to participate in their request for 11th-hour talks.

On the positive side, we shared a lot of information with the union about the intense global competition we face, our business environment and our business issues. The union agreed to a framework on sharing future medical cost increases. We developed an approach to an incentive pay plan that would reward employees for achieving annual targets in the areas of cost, quality and productivity. We had good, constructive dialogue on a range of important issues, and we hope to build from there in regular meetings with union leadership. We remain committed to improving our relationship with the IAM.

When all is said and done, we believe that we are in the midst of one of the most exciting, dynamic times for commercial aviation. And the Puget Sound region is the hub for aerospace talent. We solve incredibly challenging technical problems every day and we work together to get the job done. Puget Sound and Charleston combined are a great engine for growth and a successful future for us all.

Thanks.

Ray and Doug

From Tom Wroblewski

“I’d like to respond to Doug Kight’s e-mail to managers explaining what he says were the stumbling blocks that kept us from reaching an agreement to keep the second 787 line in Everett. It’s misleading, it’s disappointing and it’s not truthful.

Boeing would not commit to any agreement to keep the second line in Everett. That, and only that, is the reason why our conversations went nowhere.

The proposals Boeing e-mailed today were more detailed than anything we heard from the Company during three weeks of face-to-face conversations. They threw a lot of numbers around while we were talking together, but they were never willing to put them in writing. If they’d been this willing to put numbers in writing a week ago, we might have got somewhere.

We presented them an initial, verbal proposal. They never responded to that first proposal in writing, never told us what they wanted to see in an agreement — and absolutely never told us there was a deadline for submitting revised offers. Instead, we found out the hard way that they’d set an arbitrary deadline; when it passed, they just walked away. They’ve set a lot of unrealistic deadlines with the 787. This was just one more.

The discussions we had with them were like trying to build a foundation for an agreement on the shifting sands of the desert. As soon as we got close to an agreement in one area, the Company would change the subject. We never exchanged formal written proposals – and we never got a guarantee for the second line.

Aside from being misleading, the tone of this e-mail was disappointing too. I see no value in going back and rehashing this. It serves no purpose. They got what they wanted from South Carolina. It’s time to move on.

This latest Company e-mail is just another smoke-and-mirror tactic trying to confuse the situation. Boeing executives had made their decision long before they ever sat down to talk with us. They’re breaking ground in Charleston in two weeks and planning deliveries for 2012, both clear signs this was their plan all along.

The simple truth is there won’t be any new jobs in South Carolina if our Members here in Puget Sound can’t find solutions for all the 787’s problems. We’re the ones who will fix the mistakes and get the first planes ready to fly, and we’re the ones who will be building 787s on two lines in Everett – the main line and the new surge line — while they’re still filling in swamp land in Charleston.

Without us, the Dreamliner is just a pipedream. Let’s focus on making it a reality, and quit stewing and fretting about who said what and when.”

Update, Oct. 30: We’ll be posting our post mortem Monday, Nov. 2.

This isn’t the post mortem we’re working on but there is a lot of traffic to this site today, obviously looking for some thoughts, so here are a few rapid-fire ones:

• Boeing says it didn’t go into the labor negotiations with a preconceived decision. But we think if it looks like a duck, walks like a duck and quacks like a duck, it’s a duck. We always felt Line 2 was Charleston’s to “lose,” so to speak, and that Everett was a very, very long shot.

• But at the same time, the IAM asked for stuff that just had no chance of being accepted. Some of this originated with the IAM national leadership that had nothing to do with the needs of the IAM local. We’ll talk about this more in our post mortem.
• The successor airplanes to the 737 and 777, with decision timelines we estimate to be in the 2013-15 period, will be Puget Sound’s Rubicon. With the IAM and SPEEA contracts coming up in 2012, the outcome of these will dictate with finality where the successor airplanes will be. We predicted in April that these will not be in Puget Sound. We also predicted in April Line 2 would be in Charleston.
• Washington State and labor have to decide what they are willing to do between now and 2012-15 to try and keep the successor airplanes. We predict they will all dither away these opportunities through inertia (on the part of the politicians) and resentment (on the part of labor).

This will have to tide readers over until we can fully do our post mortem.